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SAN JOSE — Off the main hall of the radiology department at Saint Louise Regional Hospital in Gilroy, patients and nurses take a set of double doors outside to a small courtyard that holds a row of shipping containers full of medical records, a sun-bleached picnic bench and large white trailer.
The trailer contains the hospital’s only MRI machine, which for more than ten years has been used outside the building due to a lack of space.
Patients are wheeled or walk outside to the machine, rain or shine, said John Hennelly, the hospital’s CEO, while sharing an umbrella in the drizzling rain with two other executives as they stared at the trailer from across the courtyard.
“We’ll have to do something about that,” said Santa Clara County CEO Jeff Smith, who as of Friday morning, is now in charge of the hospital.
The $235 million sale of the 93-bed Saint Louise Regional Hospital and 358-bed O’Connor Hospital in San Jose to the county closed Friday, massively expanding the Santa Clara County public health system.
“Patients shouldn’t notice much of anything” in terms of changes, said Smith. “The major changes are back-office issues like billing and purchasing, but those won’t be visible.”
But already on Friday, there was uncertainty about the transition: the California Nurses Association, which represented 750 nurses at both hospitals under the previous owner, announced a one-day strike on March 12 to protest the requirement that nurses rehired by the county would join another union, the Registered Nurses Professional Association (RNPA).
The county purchased the hospitals from the nonprofit Verity Health System, which filed for bankruptcy in August.
In addition to operating O’Connor and Saint Louise as safety-net hospitals — which treat patients regardless of their insurance coverage or ability to pay — the county says it plans to maintain all services currently provided at the hospitals.
It will spend at least another $200 million on various repairs and upgrades, including a new electronic health record system and improvements like fixing elevators, buying new hospital beds and replacing aging imaging equipment.
“This is part of the county’s long-term, strategic commitment to health care, which these two hospitals have not seen,” said Paul Lorenz, CEO of Valley Medical Center who now oversees all three facilities. “What we have here is a pretty strong signal to the community that we’re here for the long-term.”
The purchase also includes De Paul Health Center, an urgent care clinic in Morgan Hill.
“The completion of the sale means that these important institutions will continue providing local communities with the high quality care they need and deserve,” said Rich Adcock, CEO of Verity Health Systems, in a statement.
A Costly Endeavor
With the addition of two new hospitals, the annual operating budget for the county’s public hospitals is projected to swell from $1.8 billion to $2.3 billion, and the county’s workforce will grow by almost 2,000 employees.
The county bought the hospitals with cash from its hospital enterprise fund. Eventually, the county will issue an estimated $300 million in lease revenue bonds — using Valley Medical Center as collateral — to pay back the general fund.
The most significant investment by the county, Lorenz said, is the $100 million it plans to spend to transition O’Connor and Saint Louise to the county’s existing electronic records system, Epic, which is widely used industry wide.
The county estimates another $100 million toward capital improvements, although Smith said that cost could “change considerably” after the county does additional assessments.
For example, some of the operating room lights at O’Connor Hospital are dysfunctional, so the rooms go unused.
Saint Louise, lacking the cash to buy new hospital beds, has resorted to renting. The building’s exterior also needs a new paint job, said Hennelly, before the heavy rains that have pelted the region permanently damage on the structure.
Lorenz said there are a number of areas where a bit of extra investment by the county could go a long way, such as beefing up specialty care at each hospital.
Saint Louise is also primed for an expansion as the population of Gilroy and Morgan Hill continue to grow, fueled in part by rising housing costs up north, he said.
Hennelly hopes county ownership will improve the community’s perceptions of Saint Louise, saying the hospital’s obstetrics program is underutilized. The maternity ward, for example, was built to deliver eight to ten babies a day, but now only handles one or two births a day.
“They [the community] feels it is not strong enough, so they’re driving to San Jose,” said Hennelly. “So with Santa Clara County’s back-up, we can confirm that you can get anything you need here.”
It’s unclear how much the expansion will cost long-term. While the county expects to make significant capital investments to the facilities, Smith said ongoing costs will depend on how many patients patronize the hospitals.
The county is projecting an overall drop in patient visits to both facilities this fiscal year compared to the last.
“We’re basically projecting a worst-case scenario, and expecting a better-case scenario,” said Smith. “At this point, it’s only slightly more informed than a rough guess.”
Uncertanties
The acquisition comes after years of uncertainty for the hospitals, which were owned by the Catholic nonprofit Daughters of Charity but were sold and restructured in 2015 to become Verity Health System.
After less than three years of running the hospitals, Verity filed for bankruptcy in August, and the county quickly emerged as the only bidder for O’Connor and Saint Louise.
For months, California Attorney General Xavier Becerra sought to block the sale, arguing the county should commit to a set of conditions to preserve existing service levels that the Attorney General had imposed on Verity during the previous restructuring. Two federal judges denied the AG’s request to block the sale, saying Becerra has no authority to regulate the sale.
Andrew Prediletto, a collective bargaining representative, said the CNA supports the expansion of the county’s public health system but has been frustrated by the county’s refusal to negotiate with them over wages, working conditions and continued representation of the nurses.
“There has been instability at these hospitals, and that’s why we expected the county to work with the nurses and work with the community before making any major changes,” said Prediletto. “Instead they’ve come in and done a lot of changes that are causing more instability.”
He said the county hasn’t agreed to meet with CNA representatives to begin formal negotiations and has said in letters it will not recognize the CNA.
“The county could move to resolve this today by picking up the phone or sending an email,” Prediletto said.
Smith said the CNA is asking the county to do something it legally cannot.
“What they’ve told us is they want us to decide unilaterally that they are the bargaining unit for the nurses being hired…and we don’t have the authority to do that,” Smith said.
Smith said the county is happy to meet with the CNA informally, but they can’t engage in a formal meet-and-confer process.
Contact Thy Vo at 408-200-1055 or tvo@bayareanewsgroup.com.